What happens if our country goes Bankrupt?

GooeyBlob

Rochdale_Pioneers wrote: »

We won't go bankrupt. So far we're not having any problems selling government gilts.

Sorry, that isn't correct. The UK had difficulties selling gilts at auction just a few weeks ago, leading many commentators to suggest we might be seeing the start of a gilts strike.

Kenny4315

No need to PANIC, Mr Clown & Hs Darling are 'going to use all the weapons at their disposal to fight the downturn', so we should be alright in a couple of weeks. :rolleyes:

Peashooter against a horde of barbarians spring to mind.

Does he realise he's only got another 1.5% to play with given that's just about his only tactic. :rolleyes:

Cat695

America wouldn't let us

I mean where else would they stash their nuclear weapons and bombers?? seeing as pretty much no one else in the world likes them

Rochdale_Pioneers

GooeyBlob wrote: »

Sorry, that isn't correct. The UK had difficulties selling gilts at auction just a few weeks ago, leading many commentators to suggest we might be seeing the start of a gilts strike.

We DID manage to sell them, we had to up the interest rate but they did sell. Which is more than can be said for Germany.

So yes, there will be a problems with governments raising cash - I made exactly that point on another thread. But thats not to say that we're already struggling. We're still doing better than the Germans. And the Spanish had to scrap their gilts sale completely.

Generali

I suspect things will be bad in the UK but I don't envisage bankruptcy. It is a risk but I reckon a big chunk taken off UK-ish living standards is far more likely.

On the plus side, as Sir H says, the UK Government doesn't have a massive debt when compared to countries like Japan and Germany. Even once you include PFI and unfunded pension liabilities the total is still below that of many developed nations.

But.................................................................................

The UK has a major weakness: external debt. The UK as a whole owes an awful lot of money to foreigners. The UK's total external debt is $10,450,000,000,000 which is about 4xGDP. To put it simply, this is a huge amount of money and it represents a risk if the exchange rate falls too far.

It is possible to see a sort of circular problem starting where the exchange rate falls so companies and the Government has to sell more pounds to meet their foreign debt obligations causing the pound to fall further and so on. That would end very nastily, probably with some sort of default.

However, it doesn't end there. If the UK Government, one of the AAA borrowers in the market defaults then the entire world market for foreign sovereign debt will be pretty much at an end.

So will it happen? Probably not. Just because something is a risk it doesn't mean that it'll happen. The MPC (contrary to popular opinion) aren't fools. They realise that if the pound falls below a certain point they have to take action to support it through intervention in the currency markets at first and then to raise interest rates to make sterling denominated assets more attractive.

And what happens if the Government defaults? Well it won't be pretty. The Government will have to cut GBP100,000,000,000 off spending instantly (as they won't be able to sell any more debt). Also, a lot of trade with the UK that is covered by Government export guarantees will end abruptly. Food will probably be scarce. Probably a State of Emergency would be declared. Army on the streets and all that. Think South America in the 1980s but colder and you've got it about right.

It is deeply unlikely though. If it happens then we're aaaall doomed!

jennieharris

Could we lose all our savings if England went bankrupt?

jennieharris

Does anybody know if you could lose all your savings if the country went bankrupt?

Generali

jennieharris wrote: »

Could we lose all our savings if England went bankrupt?

Not necessarily. If the Government goes bankrupt, they don't call in the Official Receiver to divide up everyone's property to give to foreign creditors, don't worry about that.

However, it's hard to see a situation where a country could default and not see a massive devaluation in her currency. That would see a big fall in the buying power of your savings.

Also, the Government could decide to avoid default by nationalising everyone's savings.

Things really have to get a very great deal worse before this is even on the cards. Every rich country would try to prevent it if it looked vaguely likely as it would be such a terrible mess.

WTF?_2

jennieharris wrote: »

Does anybody know if you could lose all your savings if the country went bankrupt?

Theoretically, yes because sterling wouldn't be worth jack. Just so many useless pieces of paper.

Though it's more likely to happen because the bank holding the IOU to you goes bankrupt and the government compensation scheme can't make your loss good.

In practice, seems like the government will drive the country into penury before letting a big bank go under. But RBS may well test that, the group is huge.

amcluesent

>the Government could decide to avoid default by nationalising everyone's savings.<

Which is why anyone buying bullion should keep it offshore in certified vaults.